Assigning Your Marketing Budget: Where to Begin?

In our own independent client survey, it was a similar picture, when asked separately about their media budget, 80% of respondents stated their media spend would be increasing this year, reinforcing the need to increase frequency, reach and delivering against performance metrics. So, when marketing budgets are being planned, how much really is enough as a baseline spend?

The answer ultimately comes down to your commercial objectives and largely remains industry specific, taking into consideration wider market factors such as price-elasticity, supply and demand, and the level of competition. We help our clients define, plan and manage their marketing budgets to deliver against their commercial targets. Whilst benchmarks can be a useful barometer to help guide decisions, we operate in the real-world and sometimes a pragmatic approach is needed, taking into account macro and micro economic factors, as well as broader organisational pressures. Take a look at these three different approaches and see how you could re-evaluate your marketing expenditure…

Marketing as a percentage of revenue

In the simplest terms, your marketing budget can be allocated as a percentage of your revenue.

The amount of revenue businesses allocate to marketing has grown over the last few years, with the average at 9.1% of overall company revenue in 2023 compared to just 6.4% in 2021. As a general rule of thumb, B2B brands should spend between 2-5% of revenue on marketing – whereas for B2C, the proportion is often higher, somewhere between 5-10%.

Whilst this is a helpful benchmark, it’s also quite broad and important to consider the wider factors at play and the specific circumstances impacting your business. For example, let’s say you’re operating in an expanding market rife with new and emerging brands, in this scenario, raising awareness of your offer and securing market share is going to require more competitive levels of marketing investment. Literally, you’ll need to pay (invest) to fend off the competition. On the flip side, if you’re a well-established brand in a mature market where there is little threat of disruption, it’s likely you’ll be able to comfortably generate demand organically – through word of mouth, reviews and repeat custom.

All that aside, it’s important to make sure that your marketing budget aligns with your commercial objectives. All too often the two are set in isolation and the result is a series of unreachable targets with unrealistic budgets to match.

Marketing as a contributor to revenue

Unless you have a measurable and predictable marketing ROI or mark-ops system in play, it’s a difficult question to answer. Most senior business managers take a conservative approach by allocating the bare minimum. While this approach saves money, it limits growth, creating a whole different challenge in a world of over-supply. You’ll need to have some key marketing metrics to hand – we’re talking cost-per-lead, conversation rate, average transaction value. If you haven’t seen it already, check out our recent article on the need to know marketing metrics to track in 2024.

If you don’t have actionable data, here’s one way to look at marketing as a contribution to revenue. Start with assumptions based on industry benchmarks. Set goals that make marketing accountable for a revenue contribution percentage. The marketing contribution to sales should be based on a reasonable rate of return for the investment you’re making. Here’s an example. A fictitious £10 million company funds their marketing at a conservative 3% of revenues. Let’s assume the marketing budget is composed of a 50-50 ratio of campaign funds to employee wages and operational overhead. That leaves £150K for campaign activity during the year.

A strong ROI is achieved when revenue generated is 10 times the cost of campaigns. However, when considering the entire marketing budget, this multiplier decreases to 5 times (refer to the left-hand side of the infographic). The sales contribution is £1.5 million, equating to 15% of the annual revenue. To increase the revenue contribution from marketing, you’ll need to invest more than a 3% ratio.

By consistently enhancing your campaigns, you can boost your marketing ROI and achieve a greater marketing contribution with the same 3% investment. A 10X ROI in the initial scenario is impressive, but achieving a 20X ROI is even better. This simple exercise highlights the value of “revenue marketing.” Use it as a guide to enhance cost efficiency in your sales and marketing operations. This approach goes beyond merely setting targets and hoping for the best; it requires a well-defined messaging strategy supporting a focused, data-driven demand generation campaign. The effort is well worth the results.

Marketing as a utility cost

Lastly, when budgets are prohibitive or you need to prove results to release budget, our advice is to start with the basics and do these brilliantly. In this scenario, we help clients by reviewing the competition and market, with the aim of establishing a picture of competitor spend, share of voice, search traffic and brand awareness.

This provides us with a realistic lens on what’s possible and how much we’d recommend spending to enter, maintain or grow your position in market. For the most part, this is simply a list of the marketing channels and initiatives we’d recommend investing in along with their related costs. Consider it the MVP of marketing – our take on the most effective and must-have areas to invest in given the budget you have available. With the budget, channels and activity defined we’d typically work alongside brands to undergo a test and learn model, re-allocating and scaling budget according to channel performance and the return.

If you’d like to talk more about balancing your budget and delivering on your marketing strategy, we’d love to help. Get in touch with our Client Services Director, Francois d’Espagnac.